“Like everything in our professional lives, business contracts are changing and being transformed by digitalization. And like many other technology advances, this transformation is enriching the role of legal, finance, procurement, and sales operations in designing, preparing, negotiating, and managing contracts.” – D!gital List Magazine, January 2018
As someone who has had extensive experience in the procurement world the International Association for Contract and Commercial Management (IACCM) assertion in the above article that “technology is changing the way people interact with contracts” should not be surprising to anyone.
What is perhaps surprising are the results from a McKinsey survey which found that despite a recognition of the potential impact that digital reinvention will have on the growth of revenues and profits, only 2 percent of the surveyed companies report that the supply chain (including contract management) is part of their “forward-looking digital strategies.” The obvious question is why?
There are, of course, many reasons for this apparent disconnect between recognition and action including what to do with existing legacy systems, uncertainty regarding the introduction of new technology platforms, and the development of a coherent and cohesive transformation strategy across multiple departments including legal, finance, procurement, and sales. In short, there is an absence of a clear understanding of what constitutes digital contract management success and how to achieve it.
Less Cost, More Relationships
When it comes to digital contract management, there is the added obstacle of having to see contracting and contract management, not as a legislative tool to hold suppliers’ feet to the proverbial fire when they fall short, but as a mechanism for building mutually beneficial relationships between all stakeholders both internally as well as externally. Let’s face it; the word relationship has never been synonymous with the word contract. In the digital age, not only are they two sides of the same coin, contracts without relationships will ultimately lead to underperformance.
Research by IACCM would seem to confirm my position in that the association suggests that “contracts will be less about the cost in the future and more about relationships.”
So what does this reimagined contract management vision look like in the digital age, and what role will new and emerging technologies play?
A Clear Path To Success
In discussing the impact that technology will have on an organization and its supply chain as a whole, the D!gitallist article suggests that digitalization will enable “greater knowledge application, commercial innovation, business judgment, and behavioral economics.”
It all sounds good, but what about the technology itself? What expectations should you have regarding a digital platform for contract management?
Based on our research, the new contract management tools should do everything from building strategic relationships and greater collaboration, improve supplier performance (still has to be in there), standardize processes and approvals, strengthen compliance and reduce risk, and generally automate all phases of the contract management process.
Based on the article’s referenced case study, companies who digitize in this manner will achieve greater efficiency, higher productivity, and reduced risk exposure.